GIẢI PHÁP NÂNG CAO CHẤT LƯỢNG tín DỤNG tại NGÂN HÀNG TMCP dầu KHÍ TOÀN cầu CHI NHÁNH ĐÔNG đô e

Aims of the thesis: The thesis focuses on the following content: - The basic theory of business strategy, credit activities in commercial banks.. - Proposing solutions to improve credit

DECLARATION OF AUTHORSHIP

INTERNATIONAL EXECUTIVE MASTER OF BUSINESS ADMINISTRATION PROGRAM

THESIS MBA

QUALITY AT TOAN CAU OIL & GAS JOINT STOCK

HANOI, JULY- 2013

I declare that the thesis is my own work and have been generated by me, all thedata and results in the thesis is clearly attributed.

I state all the confirmation

CIC: Centre for Information Credit

1 The necessity of thesis 9

2 Aims of the thesis 10

3 Source materials and scope of study 10

4 Methodology 11

5 Structure 11

Chapter I: General Introduction 11

1 1 Concept of corporate strategy 11

1.1.1.Concept of strategy 11

1.1.2 The role of strategy 13

1.2 External environment analysis 14

1.2.1 Macro environment analysis (PEST analysis) 14

1.2.1.1 Political Analysis 14

1.2.1.2 Economic Analysis 15

1.2.1.3 Social Analysis 15

1.2.1.4 Technological Analysis 16

1.2.2 Industry analysis (5 forces of Michael Porter) 16

1.2.2.1 Supplier Power 16

1.2.2.2 Buyer Power 16

1.2.2.3 Barriers to entry 17

1.2.2.4 Competitive Rivalry 18

1.2.2.5 Threats of substitutes 18

1.3 Micro environment analysis 18

1.4 Basic concept of banking credit 18

1.4.1 Concept and features of banking credit 18

1.4.2 Types of banking credit 19

1.4.3 Roles of banking credit 21

1.5 Theory of banking credit quality 23

1.5.1 Concept of banking credit quality 23

1.5.2 Indicators of banking credit quality 24

1.5.2.1.Qualitative indicators 24

1.5.2.2 Quantitative indicators 25

1.5.3 Factors that affect banking credit quality 28

1.5.3.1 Factors from customers 28

1.5.3.2 Factors from banks 30

1.5.3.3 Business environment 33

Chapter 2: The situation of credit quality at GP Bank - Dong Do Branch 34

2.1 Overview of GP bank-Dong Do Branch 34

2.1.1.History and development 34

2.1.2 Network 35

2.1.3 Function and mission 36

2.1.3.1 Director 36

2.1.3.2 Vice directors 36

2.1.3.3 Departments and transaction offices 37

2.1.3.4 Board of Credit 39

2.1.4 Function and mission of Dong Do Branch in GP Bank network 39

2.2 The business profile of Global petro bank - Dong Do Branch in the recent years .40

2.2.1 Capital mobilization 40

2.2.2 Lending and capital investment 41

2.2.3 Services 42

2.2.4 Business results 43

2.2.5 The situation of credit quality 44

2.2.5.1 Some regulations about credit activities 44

2.2.5.2 Credit quality 46

2.3 Analyse the business environment at GP Bank - Dong Do Branch 54

2.3.1 Macroenvironment (PEST++) 54

2.3.1.1 Economic Analysis 54

2.3.1.2 Political Analysis 55

2.3.1.3 Cuture – socio analysis 55

2.3.1.4 Technology analysis 56

2.3.2 Industry analysis 56

2.3.2.1 Buyer power 56

2.3.2.2 Supplier Power 58

2.3.2.3 Competitive Rivalry 59

2.3.2.4 Barriers to entry 59

2.3.2.5 Threats of subsitutes 60

2.3.4 Opportunities and threats 61

2.4 Micro environment analysis at Dong Do Branch 62

2.4.1 Human resource analysis 62

2.4.1.1 Human resource 62

2.4.1.2 Finance 63

2.4.1.3 Technical facility 63

2.4.1.4 Technology 63

2.4.2 Strengths, Weaknesses (S,W) 64

Chapter 3: CONCLUSION AND SOLUTIONS TO IMPROVE THE CREDIT QUALITY AT GP BANK - DONG DO BRANCH 65

3.1 Conclusions from the case of credit quality at GP Bank - Dong Do Branch 65 3.1.1 Achievements 65

3.1.2 Limitations 66

3.1.3 Causes 67

3.2 The oriented activities of credit in GP bank - Dong Do Branch 69

3.2.1 The orientation to develop the credit activity at Dong Do Branch 69

3.2.2 Expected results 70

3.3 Some solutions to improve the credit quality of GP Bank - Dong Do Branch71 3.3.1 Capital mobilization to improve credit quality 71

3.3.2 Improving credit policies contribute to the credit quality improvement 71

3.3.3 Diversification of the customer, reasonable customer strategy 72

3.3.4 Complete the credit process 73

3.3.4.1 Analyse, evaluate accurately customers: 73

3.3.4.2 Improving the quality of evaluation 73

3.2.4.3 Lending decisions must be based on identifying and understanding the borrower 74 3.3.4.4 Building inspection systems, credit monitoring performance: 75

3.3.4.5 Strengthening the debt management and overdue debt settlement 75

3.4.5 Differences to compete 76

3.3.6 Other solutions 77

3.3.6.1 Maketing strategy 77

3.3.6.2 Develop and use reasonable use of reserve fund 78

3.3.6.3 Supervising and monitoring 78

3.3.6.4 Moderization to improve credit quality 79

3.3.6.5 Information of customers 79

REFERENCES 79

LISTS OF TABLE AND CHARTS

Chart2.1.Organization structure of GP Bank - Đông Đô Branch………36Table 2.1: Debt financing situation 40

Table 2.2: The lending and debt collection situation 42

Table2.3: Business activiy result 43

Chart 2.1: The short term, middle and long term credit structure 47

Chart 2.2: Economic classification structure 48

Chart 2.3: Pledged asset classification credit structure 49

Table 2.5: Outstanding overdue debt 50

Đồ thị 2.4: The overdue debt ratio at branch 50

Table 2.6: Overdue debt classification 50

Table 2.7: Credit cycle 52

Table 2.8: Incremental Capital Output Ratio 53

table 2.9 : Revenue from credit activity 53

Chart 2.5: Revenue from credit activity shown by chart 53

1 The necessity of thesis:

The world economy situation in the first 6 months of 2013 is shown by therecovery of the U.S economy with many bright spots along with the decline inunemployment rate, the housing and land market improved monthly, the confidence of

consumer peaked the highest in past 6 years Besides Japanese launched the largest

stimulation campaign ever, Japan State bank pumped an amount of money into theeconomy The monthly basis money in June 2013 increased 36% compared to theprevious year The Yen broke the 100 yen / dollar landmark, creating favorable conditionsfor exporter The economy thrived thanks to Abenomics Besides, China's economy hasmany uncertainties, there appears the lack of cash The European economy has not got out

of the crisis, although the European Central Bank has reduced interest rates

The country's economy in the first 6 months of 2013 took place when the worldwas still affected by the economy depression, global finance, especially in the Euro area.Some countries have adjusted reduction in the growth rate of the year The marketconsumption is narrow leads to the decline in consumer ‘s demand In domestic, althoughsome macroeconomic balances have improved in the late 2012 and early 2013, but thebusiness activities of enterprises face a lot of difficulties and challenges Inventories arehigh, many businesses shut down or dissolved in 2012 and early 2013 Bad debt situationhas not been resolved Under these circumstances, January 7th 2013, the Governmentissued Resolution No 01/NQ-CP on the key measures to direction and implementation ofthe economic-social and budget state development plan, as well as the Resolution No 02/NQ-CP about some solutions to solve difficulties for business, marketing assistance, baddebt resolve, while direct the implementation drastically all sectors, local to achieve theeconomic social goals of the year Thus, the economy picture in the first 6 months of thecountry basically has some positive changes, but there still exists many difficulties andshortcomings

The credit growth target in 2013 is 12%, but in the end of June, the whole newbanking system grew by 4.5% Accordingly, the pressure of the credit growth in the last

meeting report in July, the credit growth of the banking system at the point of July 25th

was estimated to increase 5.02% But according to the central bank, at the end of July 24th,the total customer deposits at commercial banks rose 9.48% and the estimated creditgrowth for the economy is only 4.91%

Meanwhile, from now till the end of the year, the credit growth must be 1.4%/month in average to get the target of 12% However, after more than 6 months, somebanks in the system such as Sacombank, NamA Bank achieved 12% It showed that thecredit growth at commercial banks was gloomy, Vietcombank even gained negative 1%

In addition, the credit growth of commercial banks mostly rely on consumer loans,business credit remains very low Currently, banks are no longer race on interest rates toattract capital but on many preferential-rate credit services Accordingly, for individualcustomers, commercial banks boost consumer loans, buy cars, buy or build home ratesare quite reasonable

2 Aims of the thesis:

The thesis focuses on the following content:

- The basic theory of business strategy, credit activities in commercial banks

- Analyzing the real situation of credit quality at Gas Petro Bank - Dong Do branch,evaluating causes and drawing lessons

- Proposing solutions to improve credit quality at GP Bank - Dong Do branch in thenear future

3 Source materials and scope of study:

5 Structure of study:

To achieve its aim, the study will obey the following structure

Chapter 1: General Introduction

Chapter 2: Credit quality situation at GP Bank – Dong Do Branch

Chapter 3: Conclusion and some solutions to improve the credit quality at GP bank– Dong Do Branch

Chapter 1: GENERAL INTRODUCTION

1 1 Definition of corporate strategy

1.1.1.Definition of strategy

Strategy is the art of the general, the guide and tool to achieve an identified goal

According to Alfred D Chandler “strategy is the determination of the basic long-term

goals and objectives of an enterprise and the adoption of the courses of action and theallocation of resources necessary for carrying out these goals.”

William J Glueck defines the term strategy as “the unified, comprehensive andintegrated plan that relates the strategic advantage of the firm and is designed to ensurethat the basic objectives of the enterprise are achieved through implementation process”

In “the concept of strategic management” Fried R David wrote: Strategy is themean to reach long-term objectives Business strategies may include geographic growth,diversification of activities, property, product development, market penetration, cuttingspending, liquidation and joint venture

Strategy is also a method of describing the future position of a company, itsobjectives, purposes, goals, policies, and plans that may be required for guiding the company fromits existing position to where it desires to be Moreover, competitive strategy or corporate strategy isalso defined under 6 following factors:

- Product Markets: Opportunity of a business depends on its products, market, thecompetition that it can confront or avoid as well as the degree of its integration

- Level of investment: A business should select the ability to expand or enter the product

market to maintain the current position, or minimize investment to withdrawal or liquidate

to dissolve the business

- Strategic function: The competition can be one of following functions: product strategy,strategic position, pricing strategy, distribution strategy, manufacturing strategy,information technology strategy, segmentation, globalization

- Asset strategy and capability strategy: capability strategy is the dominant aspect of thebusiness Asset strategy is the competitive power of resources advantages When makingstrategic plan, a business should focus on the costs as well as asset maintainance andcreation, the capabilities as the foundation for a long-term competitive advantage ofenterprises

- The allocation of resources: Financial and non-financial resources such as buildings,equipment, people have to be all allocated Allocation decision is a key factor for astrategy

- Corporation effects between enterprises: Only enterprises corporated each others reachsuperior advantages compared to those who ignored or exploited this level of effect

In general, strategy is a set of actions and decisions which are closely related to each other,helps the organization achieve its objectives It is constructed to take advantages of thestrengths including the resources of the organization as well as to consider theopportunities and challenges of the environment

1.1.2 The role of strategy

- Strategies provide the framework for plans by channeling operating decisions and oftenpre-deciding them They make the organizational objectives more clear and specific Eachresource of the organization has a specific use at a particular time Thus, strategies ensurethat resources are put in action in a way in which these have been specified If this is done,organization will achieve effectiveness in long-term

- Corporate strategy is to help business understanding and taking advantages of business opportunities, and proactive in overcoming the risks and threats in the marketcompetition.

- Corporate Strategy contributes to the efficiency of resource use improvement,

enhances the competitive position, ensures the sustainable development of enterprises.

- Corporate strategy: creates a solid basis for the formulation of policy and decision aboutproduction in line with market fluctuations It provides a solid basis for research anddevelopment, investment in developing personnel training, market expansion activitiesand product development In fact most of the mistakes in investment, technology, markets are derived from place strategy or bias in determining the strategic objectives

The source of success or failure depends on an important factor “how the enterprisebusiness strategy is”

- Planning: corporate strategy helps business finding its purpose and direction, themanager knows what to consider and determine the organization and when he can achievethe objectives

- Forecasting: In a convulsed environment, the risks and opportunities always emerge,strategic planning helps managers analyze the environment, make predictions for a rightdirection, so that managers have the ability to capture and make better use of opportunities

- Control: Corporate strategies helps managers use and allocate available resources in anoptimal way, as well as coordinate effectively functions in the organization to achieveobjectives

1.2 External environment analysis

As these factors, forces, substitutions outside the company which the managers can notcontrol but affect the operations and results of operations of the Company

1.2.1 Macro environment analysis (PEST)

Macro environment includes: Economic, political, technological, cultural-social, naturalfactors

1.2.1.1 Political analysis.

Factors are basically to what degree the government intervenes in the economy

+ Stability: We will consider the stability among factors such as: political conflict,foreign legal institutions Institutions that have high stability can create good conditionsfor business operations, reversely it will be instability, confliction will have bad impact onbusiness activities on its territory.

+ Tax policy : export- import tax, sales tax, income tax will affect revenue and

profitability of the business

+ Regulations and law: investment law, entrepreneur law, labour law, anti-monololylaw, anti-dumping law

+ Policy: The policy of the state will have an impact on business, it can make profit

or business challenges Such as the trade policy, development policy, economicdevelopment, tax, and regulated competition policy, consumer protection

+ The economic policy of the government: the basic wage law, the economicdevelopment strategy of the government, the incentives for the industry: tax breaks,

Social factors include the demographic and cultural aspects of the externalmacroenvironment These factors affect customer needs and the size of potential markets.Some social factors include: health consciousness, population growth rate, agedistribution, career attitudes, emphasis on safety, lifestyle, living condition…

1.2.1.4 Technological Analysis

In the world of technology revolution, a series of new technology was launched andintegrated into products and services If 30 years ago, a computer is just a tool to calculate,now it has functions to replace a man working completely independent Especially in thefield of information technology, modern communications technology has shortened thegeographical distance, transmission media

Technological factors can lower barriers to entry, reduce minimum efficientproduction levels, and influence outsourcing decisions Some technological factorsinclude: R&D activity, automation, technology incentives, rate of technological change

1.2.2 Industry analysis (5 forces of M Porter)

Porter’s Five Forces is first published on Harvard Business Review in 1979 with thecontent of finding the factors that make profit for business This model is usually called “

5 forces of Porter”, which is known as an effective and useful tool to find the root ofprofit Moreover, it shows the competitive strategy to maintain or increase profit of abusiness

1.2.2.1 Supplier power

The bargaining power of suppliers is also described as the market of inputs.Suppliers of raw materials, components, labor, and services (such as expertise) to the firmcan be a source of power over the firm, when there are few substitutes Suppliers mayrefuse to work with the firm, charge excessively high prices for unique resources

- Number of suppliers: determines the forces, negotiation to the field and enterprise

- Supplier switching costs relative to firm switching costs

- Information of suppliers: Strength of distribution channel…

1.2.2.2 Buyer Power

Buyers/customers are those who can affect directly to the business activity It isidentified in 2 groups:

+Retailers+DistributorsThese two groups put pressure on the enterprise in pricing, product quality,

knowledge of suppliers' costs considerably increases the bargaining position of buyers.There are a number of factors which increase the power buyers:

+ Scale+Importance+Buyer switching costs+Information of buyers

1.2.2.3 Barriers to entry

The possibility of new firms entering the industry impacts competition A key is to assesshow easy it is for a new player to enter an industry The most attractive segment has highentry barriers and low exit barriers

Barriers to entry are unique characteristics to each industry They reduce the rate ofentry of new firms and, therefore, maintain a level of profits for current industrycompetitors Barriers to entry can be created or exploited to enhance a firm’s competitiveadvantage

Barriers to entry arise from several sources:

- Patents and proprietary knowledge

- Asset specificity – (Specialized technology or infrastructure)

- Economies of scale

- Government, stakeholders

Exit barriers limit the ability of a firm to leave the market and can exacerbate rivalry –unable to leave the industry, a firm must compete

1.2.2.4 Competitive rivalry

According to M.Porter, rivalry refers to the competitive struggle for market share betweenfirms in an industry Extreme rivalry among established firms poses a strong threat toprofitability The strength of rivalry among established firms within an industry is afunction of following factors:

+ Extent of exit barriers, amount of fixed cost, competitive structure of industry, presence

of global customers, absence of switching costs, growth Rate of industry, demandconditions

+ Barriers of joining field: technology, capital, commercial factors: distribution system,customer system, trademark, material, copyright, Government protection…

1.2.2.5 Threats of substitutes

Substitute products refer to the products having ability of satisfying customers needseffectively A threat of substitutes exists when a product's demand is affected by the pricechange of a substitute product: more substitutes become available, the demand becomesmore elastic since customers have more alternatives

1.3 Micro environment analysis

A micro-environmental analysis is a review of the internal climate of a business.The review typically covers all aspects that are under the operating control of the business.Services or products a company manufactures or provides, operational decisions, andmarketing activities are assessed and analyzed in a micro-environmental analysis

Micro-environmental analysis is to find out the strengths and weaknesses of thebusiness, to find ways to achieve competitive advantage, the role of different capacities,resources to maintain a sustainable competitive advantage

1.4 Basic concept of banking credit

1.4.1 Concept and features of banking credit

It s difficult to define clearly what credit is, based on each study, we can give outdifferent definition for this term.

Credit is derived from a Latin word “caredo” (means belief, trust) In fact, credit can

be understanded in many meanings Even in finance, depends on each circumstance todefind the concept

Credit is a basic function in banking activity and it can be defined as followed:

Credit is a asset transaction which allows one party to provide resources (financial, goods,

or service) to another party(corporation, individuals) where that second party does notreimburse the first party immediately (thereby generating a debt), but instead arrangeseither to repay or return those resources (or other materials of equal value) at a later date

1.4.2 Types of banking credit

To manage and effectively use credit, it is necessary to classify Classification is the arrangement of loans in groups based on a certain number of criteria,

if the loan is classified basically, banks can establish appropriate procedures for loans aswell as improve the efficiency and management of credit risk.There are many types of loan, but in fact it is often classified as the lending criteria asbelow:

* Based on the purposes, there are types of loans:

- Loan for corporation: Finance is provided to meet the demand of capital, costs inindustry, commerce and service

- Loan for real estate: Loan is given for the investment in industrial infrastructure,urban areas, house for rent or for sell

- Loan for agriculture: Finance is provided to meet out manufacture costs such asfertilizer, pesticides, seeds, animal food, labour, materials…

- Loan for import-export: Loan is given to import goods, material, facility,exporting transaction with enterprises whose has foreign revenues

- Individual loan: Achieve goals and enjoy life to the fullest, pay for the daily costsbased on the credit card issue

* Based on the maturity of terms, it can be classified:

- Short term loans: loans which have the payback period is due at 12 months tocompensate for the lack of capital of enterprises

- Mid term loans: The maturity is up to 12 months to 60 months, is used to invest infixed assets, renew technology, openwide operation, make new project which is immediatefinance-need

- Long term loans: The maturity is more than 60 months, is given to meet out thelong-term demand of investors, for the investment projects, work building, mortage ornew factories

*Based on the wworthiness of the banks to customers, there are 2 types:

- Loans with non-collateral: Is the loan with no pledge, collateral or guarantee ofthe third party The banks only base on the prestige of customers With those who is goodand legal in business, have financial ability to qualify the loans, the banks do not requirethe pledge

- Loans with collateral: Is the loan with pledge, collateral or guarantee of the thirdparty

* Based on the types of lending:

- Cash loan: Is the main kind of loans which banks used mostly, and the lending ismade by the various business credit advances, overdrafts, installment credit

- Asset loan: is usually financed by hire purchase funding, under which commercialbanks or leasing companies of commercial banks provided directly assets to the borrower.They will pay the loans including principal and interest when due

* Based on the method of payment, there are 2 types:

- Loans which have payment plan:

+ Loan with one term of payment

+ Loan with many term of payment

- Loan with no due payment: pay the debts more than once but do not have anytimeout, depends on the financial ability of the borrower, they can pay at anytime theycan

* Depends on the size of loans :

- Loans by purposes

- Loans by credit level

1.4.3 The importance of bank credit

In the market economy, the economic relations is affected by objective rules such asthe rule of value, supply and demand, competition rules The business is only sustainablewhen there should be capital investment and bank credit - one of the best capital sourcesfor business to be exploited The development of a business leads to the development of aneconomy Thus, bank credit is the power to promote economic growth and helps regulatethe market economy The role of bank credit is shown on the following aspects:

* First of all, bank credit increases the economic efficiency

The business operation based on equity and loans One of the sources for loans isfrom banks It is an effectively funding because it satisfies the capital requirements onboth number and duration Furthermore, in order to get loans from banks, the businessneeds to improve reputation, ensure credit guidelines To do so, in the project, businessplan, they must select projects, plans which have the highest level of profitability Toensure the feasibility, they must segment the market, exploit information to operation theirbusiness effectively It helps increase the economic efficiency of the project and plan

On the other hand, one of the stages in the process of bank credit is monitoring theuse of loans It required the enterprise to use loan funds for the right purposes, adapt tomarket changes, manage loans, thereby improve the economic efficiency Besides, the role

of professional consultants will also help clients predict business problems, overcomedifficulties

* Secondly, bank credit contributes to the continuous movement of capital, increasethe currency cycle in the economy, creating a mechanism in distributing capital effectively Due to the circulation of capital, during the operation of an enterprise, there alwayshave a mismatch in timing and volume of needed monetary amount, which is used toreserve goods for production and business processes earlier Thus, currency cycle of abusiness is unstable, sometimes excesses, sometimes owes The temporarily idle funds ofenterprise along the savings from residential from budget are mobilized and used by the

banks to invest for businesses that are temporary lack of funds, for the temporary exceededdemand of the population, as well as the needs of spending without revenue of the Statebudget.

By screening, monitoring mechanisms, commercial banks will only provided finance

to the project, the plan which is feasible and has qualified payback ability It makes thecapital source effectively distributed

* Thirdly, credit bank supported the economic strategy and the monetary policy.

An important feature of commercial banks is to make money through creditoperations and payment When the government wants to increase the volume of moneysupply, the state bank can increase the credit level of commercial banks to the economyand reversely Hence, in the form of credit, the state bank can control the volume ofmoney supply in circulation

* The forth is credit bank helps motivate the international economic relations

In the trend of globalization, the economic exchange between countries are alwaysconsidered In an open economy, an enterprise has not only trading relations but also theimport and export relations with foreign partners Banks can foster this relationship in theform of guarantees, loans to enhance its reputation in the international arena Hence, bank credit plays an important role for the economic development of a country Itpromotes the economic growth and development To assess the performance of acommercial bank is good or not, we should investigate the credit quality

1.5 Theory of bank credit quality

1.5.1 Concept of bank credit quality

In the present context, when our country is in the process of integration, thecompetition between enterprises is increasingly powerful, they only can survive and grow,when they constantly improve their position in the market It requires the product qualityimprovement, reasonable prices, which quality is the most importance to the success orfailure of a business, especially for comercial banks - special enterprise doing business oncurrency trading

In general, quality can be interpreted as the suitability of the product for theconsumer's request or set of product features containing levels of its adaptation, to meetthe specific needs by its use with the necessary social costs.

Thereby, we can understand the quality of bank credit is the best way to meet therequirements of customers (depositors and borrowers) in credit relationships, assuressafety in the capital recovery through the effective promotion of plan, formed byborrowing money or minimize the risk of capital, increase the bank's profitability,contributing to the socio-economic development

To learn more about credit quality, we can consider the credit quality on thefollowing aspects:

*For customers:

Credit quality is reflected in the amount of money, which is lended from banks, hasinterest rates and reasonable terms of payment; simple, convenient procedures, attractsmore customers, while ensuring the principle of credit

*For commercial banks:

Credit quality is reflected that the credit scope, extent, limits must be consistent withthe bank and forced to ensure competitiveness in the market to repay the principle andinterest on time For small banks, credit should be granted with the extent and certainrange to satisfy customers the best

*For Government and the economic-socio development:

Credit quality is shown in the credits given to the production and circulation ofgoods, contributes to the employment, exploits potential resources of the economy,accelerates the process of accumulation and production concentration, resolves therelationship between the credit growth and economic growth

1.5.2 Indicators of bank credit quality

Credit quality is a general indicator, reflecting commercial banks’ adaption to the changes

of the external environment, and demonstrates the power of a bank in the competition forsurvival and development To assess the strength or weakness of banks, we must assessthe credit quality There are many indicators of credit quality assessment: some arequantitative, some are qualitative

1.5.2.1.Qualitative indicators

Quanlitative indicator is shown in the following aspects:

Credit quality is demonstrated through the ability to meet customer demand, simple,convenient procedure, timely finance, term and payment method in accordance with theirbusiness cycle

Besides, the credit quality is also considered through the operations of the bank,exploiting the potent of banks in the area

1.5.2.2 Quantitative indicators

* Total debt and debt structure indicators:

Total debt is an indicator, reflects the amount of money which banks provided for theeconomy at a point of time Total debt includes short-term loans, medium-term and long-term Low total debt reflects the weakness, not scalable, limited marketing stage of bankoperation.However, it does not mean that the higher the indicator is, the higher the creditquality increases, because along with the loan is the risks that the bank incurs

Total debt indicator reflects the scale of bank credit and the bank's credibility Totaldebt of a bank, compared to the market share of credit of other banks in the area, showsthe bank debt is high or low

Debt structure reflects the proportion of types of loans in total loans Structuralanalysis will help the bank promote or limit lending When compared debt structure to themobilization source we can see which kind of loans incurs risks the best

* Overdue debt ratio:

Overdue debt ratio = Overdue debt

Total debt

(Source: State bank)

Overdue debt is arising from the imperfect credit relationship when the borrowerfails to repay to the bank in time

Overdue debt ratio is the percentage of overdue debt and total debt of commercialbanks at a specific time, usually at the end of a month, quarter or year

The principle of credit is the repayment, so safety is the most important When a loan

is neither paid as committed nor shown suitable reasons to be rescheduled, the bank willtransferred to overdue debts with higher interest rates in the term The overdue loan iscalled the bad debt, such as sub-standard, Doubtful, or Loss debt The higher the overduedebt ratio is, the more difficulties the banks get because of losing capital, liquidity andrprofit reduce The higher the overdue debt ratio is, the lower the credit quality is

On the other hand, in order to more accurately assess, this indicator is divided intotwo categories:

Payable overdue debt ratio

= Payable overdue debt

Overdue debt

Non-payable overdue debt ratio

= Non-payable overdue debt

Overdue debt

(Source: State Bank)

These two ratio shows the percentage in the total payable overdue debt and in thenon-payable overdue debt

* Credit cycle criteria

These criteria are usually calculated annually by commercial banks to assess creditmanagement and credit quality to meet customer needs

Credit cycle = Revenue of debt collection

Average outstanding loans

(Source: State Bank)

This cratio reflects the cycle of credit flows High credit cycle proved fast capitalrotaion, involved in many production cycles and good circulation With a certain amount

of capital, but due to rapid rotation, the bank better meet the needs of capital forbusinesses On the other hand, the bank payback faster to continue to invest in other field.This ratio reflects the situation of increasing credit management, high credit quality

* Income from credit activities

Can not say the credit is high quality when it does not provide an income for thebank In our country, the income from credit operations is primary revenue to the

survival and growth of a bank Profit from loans shows that the principle is not onlyrecovered but also gain the interest, ensures the safety of loans.

Income from credit activities

=

Interest from loansTotal profit of bank

(Source: State bank)

This indicator reflects the profitability of credit operations It shows in the totalprofits how much money gained from credit operations Any loans that will not bringsprofit can not be high quality The higher the percentage shown the higher credit quality,which brings high profits for banks Each bank has own credit assessment, but most do nothave a precise figure as a basis for comparison, but based on this criteria each year theycan assess the quality of credit

* Loan sales, loan sales revenue.

- Loan sales: Reflects the capital that banks disbursed This figure shows the trend

of expand or narrow credit operations However, the increased loan sales is not alwaysgood, and vice versa shrinking loan sales is not always bad, this issue will depend onmany factors such as the strength of the bank's condition economy in a given period

- Loan sales revenue: Reflects the repayment of bank capital in a period Thiscriteria may reflect the stablity of a business that can timely repay the capital or noticeabnormal signal that enhances the recovery of capital

* Capital efficiency.

Analyses the structure of loans in total mobilized capital is reviewing theproportion of loans were consistent with the ability to meet the bank or not, as well as thecapital requirements of the economy On that basis, the banks have been able to know thescalability of their credit, then, make decisions to scale, the proportion of investment inany sector to have a reasonably secure loans, but also can record the highest profit Theformula is shown:

Capital efficiency =

Total debtTotal debt financing

(Source: State Bank)

* Suspended interest:

Suspended interest is calculated on the principal and interest of a loan but have notbeen recovered Total gains on the debt is as low as possible The higher suspension ratereflects the bigger risk, the bank has the ability to lose both interest and capital The creditquality is not only reduced but also affects the efficiency of banking business

1.5.3 Qualitative indicators measuring bank credit quality

There are many factors required for ensuring consumer credit activity to be runeffectively, namely marketing, corporate governance, risk management, etc However,regarding effectiveness of a credit activity, credit performance is considered the mostnotable and critical factors among the others Also, there are many indicators and criteriathat can be used to assess credit performance

In the scope of the thesis, only key performance indicators will be taken intoconsideration in order to evaluate and quantify effectiveness of consumer credit

1.5.3.1 Customers

* Capital needs of the client:

Any goods or services to be sold need the buyers So is bank credit Banks can notlend if do not have clients Considering the scope of the whole economy, the demand forbusiness capital, investment and consumer demand is always needed, but bankingactivities are not always the same Because the number of close customers with the bank islimited and sometimes the capital requirement is not high, fot instant, when the economydecreases, businesses tend to narrow production, private consumption also declines, leadtroubles to the banks in case of extending credit

* The ability to meet the conditions and criteria of bank credit :

To ensure safety and avoid risks when lending , banks often set the conditions andcriteria for classification of credit and customer choice Only customers who meet therequirements of the bank are approved The conditions and criteria may be different,depending on each bank, but generally are concerned about a number of issues: civil legalcapacity and capacity for civil acts of the borrower, the legitimate uses of capital, financial

capacity, production capacity of enterprises, the viability of the loan plan, the securitymeasures To be clear, the ability of customers to meet the conditions , credit criteria willdirectly affect the quality of bank credit , the fact showed that many customers who cannot meet the bank's requirements, may be the conditions are too strict, or impractical, ordue to low capacity, banks can not easily expand lending while also ensure the safetyrequirements of credit

* The ability of clients in the management and use of effective loans:When lending, the bank expects repayment from the results of the project activities,business plans or steady source of income regularly is if it is consumer loans rather thansale of guaranteed assets This depends on the effective management and use of customerloans There are many factors needed to ensure that the use of customer loans effectively,including a number of factors such as the role of deciding the status and capacity of theenterprise market, technological capacity quality staff, the level of corporate management

1.5.3.2 Banks

* Term structure of commercial banks scale:

When a company wants to borrow, the first condition is to meet the bank capitalconditions Not only capital, as required to ensure the solvency of the banks regularly, theborrower must ensure the maturity structure of capital source is consistent with the term ofthe loan The size of this fund is one of the factors decides the bank ‘s scale of lending

* The capacity of the bank in the project appraisal, loan scope:

One of the criteria for evaluating the credit quality of the bank 's capital and interest

is repayment on time It will not be possible if the implementation of the project, the plan

is not achieved the desire, or the corporate, customer loans has no goodwill , deliberatelydeceptive To limit the risk, banks should implement the project appraisal, loan scope,customer evaluation Typically, the customer evaluation is performed first and mainlyfocuses on considering the following aspects: legal status, financial capability, capability

of business management, credibility If the client and loan scope meets the conditions set

by the bank, the loan will be approved The issue is, the procedure, the conditions and

the procedures, conditions and standards set too strict and inconsistent with the realsituation, very few customers will satisfy the bank's conditions That hinders banks inattracting more customers, expanding credit relationship Conversely, if the processconditions are not set strict bank can make mistakes in lending decisions, leads to creditrisks Therefore, during the operation, commercial banks has continually improved andperfected their appraisal work.

* The capacity to monitor and handle the situations of bank credit :

Although the evaluation of projects , plans, customer evaluation is carried out well,the project loan scope is feasible, it does not make sure to get high credit quality Becausebusiness activities always contains unpredictable hidden risks The project, the plan itselfduring the implementation process arise unexpected situations Therefore, the monitoringand handling of the situation after credit loan is very important

Monitoring activities are mainly focused on issues such as compliance with theintended use of client funds, the actual operation of the project, plan , repayment schedule,problems arised during the project, plan implementation To perform this work will helpbanks detect and prevent in time the negative manifestations such as improper use offunds, conspiracy dispersing properties, bank fraud Besides, works closely with thecustomer, the bank can assist by providing useful information and timely, giving advice orsolutions to problems by rescheduling, adjustment term of payment, lending more to helpthe implementation of projects, business plans of customers achieved with the highestefficiency, thereby contributing to the credit quality improvement

* Lending policy

Each bank develops its own lending policy which is appropriate to certaincircumstances and certain period of time The policies should be designed so as toimprove credit performance of the bank itself The basis of a lending policy is comprised

of policy on customers; policy on size of loans and line of credit; policy on term ofagreement, interest rate and collateral If the lending policy is developed and implemented

in a scientific way, harmonises the benefit of customers, bank and the social, it will beexpected a good credit quality Conversely, if the implementation of credit policy isirrational, unscientific, it will ensures a very low credit quality level of banks

* Credit information:

Information is always the basic element which is necessary for the management ofany matter in any field It is also the same in the operation of bank credit, for projectevaluation, appraisal customers must firstly have information about the project, thecustomer The more accurate, completed and timely of the information helps the banksbuild or adjust business plans, credit policies in a flexible manner in accordance with theactual situation

* Science and technology:

The development of science and technology also allows banks to design proper lendingpolicies for each group of customers This minimizes operating costs and time for creditassessment, raising accuracy of information system which leads to improvement in credit

performance The support of modern technology also helps update information quickly

and accurately to serve the management, as well as planning, policy making credit will bemore efficiently

* The quality of personnel and human resource management of the bank:

In lending activities, credit officers always play an important role in the bank’sdecision on providing fund This comes from a fact that credit performance dependsmainly on evaluation procedures made by the underwriters A capable officer produces acareful assessment of loan application which helps lessen unforeseen risks for the bank,and reversely

The means of modern technology can only help but not substitute for sensitivity orprofessional experience of an expert, so human is extremely important for each bank,especially two issues: the quality of personnel and human resource management Qualitystaff here does not simply refer to professional qualifications but also including ethics,manners and discipline of the banking staff in general and credit officer in particular.Good personnel quality expresses in dynamic, creative work, a sense of responsibility andsense of organization and discipline of officers, which can partially help the banks offsetthe limited processing technology, whereby banks can still survive and develop despitecompeting with the strongest potential opponents about technology, technical equipment

and arrange their work so as to unleash strengths and limit weaknesses, simultaneously hastreatment to enhance the sense of responsibility, commitment and creates dedicated work

1.5.3.3 Business environment

* Natural environment:

Natural environment includes factors such as seasonal variations, climaticdifferences, soil conditions and natural terrain The natural environment affects companiesbecause of the differences in the nature of products bought by consumers due to variations

in seasons and climate

In difficult terrains like hilly areas, it is difficult and expensive to get products tothe customers It becomes more expensive to build distribution channels for companieswhose target markets are geographically disperse It is the same with bank services

* Economic – Socio environment:

Social factors influence the products people buy, the prices they are willing to pay,the effectiveness of specific promotions, and how, where, and when people purchaseproducts But societies are hardly ever static They change gradually and some changeswill be imperceptible if not watched closely Social change is the most difficult variablefor marketing managers to forecast, influence and integrate into marketing plans

* Political Environment:

The stability of the political environment and society as a basis for importantdecisions of investors If the environment is stable and reassuring, investors will makemuch more investment in to arise the credit needs Conversely, if the environment isunstable, they will find a way to narrow production to preserve capital, reduce risk, whilethe demand for bank credit fells

* Legal environment :

The legal environment with too much gaps and inadequacies will createopportunities for nefarious enterprises, mutual fraud and bank fraud The legalenvironment which is not tight and lack of stability also makes investors wary honest, willnot be brave enough to invest in business development, therefore, limit the demand forbank credit

CHAPTER 2: CREDIT QUALITY IMPROVEMENT THE CASE AT GP BANK DONG DO BRANCH

-2.1 Overview of GP Bank - Dong Do Branch

2.1.1 History of establishment and development

Global Petro Commercial Joint Stock Bank (GP.Bank), previously known as Ninh BinhRural Commercial Joint Stock Bank, has officially became the urban commerical jointstock bank, operating in Hanoi capital since November 7th 2005 From a bank which hasjust changed its model of operation, with its staff of only less than 10 officers up to nowGP.Bank has witnessed high speed development in respect of business scope, networkorganization, staff GP.Bank is using its best endevour to become one of the leadingcommercial banks in Vietnam which have high and sustainable growth rate, contributingits part to the development of the country's economic

Business network of GP.Bank keeps on being broadened with 01 Head Office and80branches/ transaction office nationwide with 1.400 professionally-trained employeesand staff GP.Bank is the one of the leading banks in successful application of CoreBanking Sofeware T24 by Tememos of Switzerland with the processing capacity of10,000 transactions/ a second This is a modern, active and integrative system that iscapable of meeting requirements of bank at network level, meeting online requirementsand timely processing environment Modernizing Information Technology System is one

of the top priorities of GP.Bank to strengthen competition, furthermore, to bring theleading services and facilities to the customers

Dong Do is one of the newly established branched with developing positive,effective business operations, creating large scale and position in GP.Bank system.The history and development of the Dong Do Branch will be attached to the policynetwork expansion and market share of GP.Bank To strengthen the brandname GP.Bank

in southern city of Ha Noi, on July 6th 2009, the Board of Management issued Decision

No 701a-2009/QD-HDQT of establishment, on the basis of 03 transaction offices from

Hoan Kiem Branch and the State Bank of Vietnam has approved the Decision No 071303/QD-NHNN January 15, 2009.

2.1.2 Structure

Decision No 701a-2009/QD-HDQT issued by the Board of Management, hasregulated the operation structure of Dong Do Branch included: Board of Director,departments and transaction offices From a branch which has 40 staff and manages 03transaction offices, now the operation network is widened all over the South of Hanoi Citywith 09 transaction offices and 110 staff, the level of bachelor and master in education is89%, the average age level under 30 is 75%, the human resource is as followed:

- Board of Directors: 03 (2,7% /Total staff)

- Head of department: 15 (13,6% / Total staff)

- Supervisors: 10 (9,1% /Total staff)

- Expert, staff: 82 (74,5% /Total staff)

Chart 2.1 Organizational structure of GP bank- Dong Do Branch

Organizational structure of GP bank - Dong Do Branch

(Source: GP Bank – Dong Do Branch)

Interna

l Inspect ion and Superv ision Dept

Custo mer Relatio

n Dept

Custo mer Relatio

n Dept

Credit Suppor ting Dept

Credit Suppor ting Dept

Accoun tant and Treasu

ry Dept

Accoun tant and Treasu

ry Dept

Transa ction offices

Transa ction offices

Each department has its own functions and duties, but support and coordinate with each other to fulfill their duties.

2.1.3.1 Director

As the head of the branch, was appointed Chairman GP.Bank To be responsible for managing and operating all daily operations of the branch Responsible to the Board, CEO and law for all activities of the branch.

2.1.3.2 Vice Directors

To advise and assist the Director in the management and operation of the branch.Duties and powers of the vice president is divised, authorized by the director, each incharge of a professional sector and responsible to the law, directors for their decisions.Deputy directors of directly supervise, manage the departments they are in charge of tomeet the objectives, and reflects the situation and operating results, give comments to thedirector for the efficiency of the bank ‘s operation Standing Deputy Director on behalf ofthe Director manage the branch when the Director is absent

2.1.3.3 Departments and transaction offices

* Customer relation Department

ncludes serving both corporate cand individual customers The main task is to studythe market, proposing and implementing measures to attract customers Direct looking forcustomers to sell credit service such as payment accounts, savings and banking services, isthe department of customer evaluation and loan schemes, credit proposal , loanmonitoring, speeding recovery of principal and interest on time, and propose andimplement measures to restructure debt, treatment for overdue loans to guarante thecapital adequacy of bank credit

* Credit Support Depatment:

- To carry out the evaluation of collateral loans includes checking the legality ofproperty valuation basis for the proposed loan; notarized mortgage contracts and securedtransactions registration, periodically check the status, level of increase or decrease of

relations department to limit risks for banks in the credit evaluation process Besides theCredit Support Department is a sivision to test the legality and validity of credit records,loan disbursement, collection account, interest on the loan and system softwaremanagement.

- Is the focal of business planning , monitoring and evaluating the implementation

of the business plan for the branch

* Acountant and Treasury Department:

Responsible 2 fuctions at the same time: transaction accounting and financial accounting

- To welcome customers, introduce and sell products and services such as open accountpayments, savings, and foreign cash, card issuance, foreign currency exchange, thecustomer, more overseas remittance

- Implementation of safety vault and vault management for the branch

- Manage and organize the accounting of income and expenses, receivables payable,general accounting, cost accounting standards, wages, fixed assets, tools and facility,inspect and supervise revenues and expenditures to ensure compliance with financialregulations and accounting of GP.Bank and the Ministry of finance accounting statistics

* Human Resoure Department

- The function of this division is to implem the organizational, management anddevelopment of human resources, responsible for clerical work, administrative,receptionist Management and purchase asset, supplies equipment and facilities for thebranch, well-organized protection agencies, coordinating with the treasury department toensure the safety of vault and the transportation money absolutely safe

- Management of network and computer system for the whole branch

* Internal Inspection and supervision Department:

Monitoring and supervising the provision compliance of law, rules and regulations

of GP.Bank for all operations: detection, prevention and treatment of existing proposals,mistakes made during professional activities to ensure safe operation, efficiency and legalcompliance The division is managed directly by the Head of Department to enhance theindependence of the tasks, the branch Director only takes responsibility in personnelmanagement

* Transaction offices:

As the branch units, has its own seal, online networking with branch offices, tofulfill the products and services of the bank such as: raising capital, payment accounts,loans, money transfer, e-banking

2.1.3.4 Board of Credit

Credit approval is not due to branch manager or authorized deputy directors, butdecided by the Chairman of GP.Bank BOM The Board of Credit consists of at least 03members, including the director as president, the remaining members are the vicepresident, the chief of expert department are approved by the General Director.The Board of Credit has been working under the collective regime, is the review anddecision credit, remission rates and charges Activities aim to promote the intellectual,collective experience, ensure enhanced credit quality, prevent and mitigate risks

2.1.4 Role and position of Dong Do Branch at GP Bank

Dong Do is a dependent accounting branch of GP.Bank, has its own seal; positions,functions and duties prescribed by GP.Bank; office address at No 10A7, Tran Dai NghiaStreet, Hai Ba Trung District, Hanoi

Since operation, the branch organization is stable, consolidate apparatus, hasincreased personnel from managers to functional staff and continuously expandednetwork Along with the growth and development of GP.Bank, Dong Do branch choseappropriate steps, overcame many challenges, so far has confirmed its position in theeconomy, had sustainable development in the new mechanism, not only promoted but alsothe diversified in banking products and services Technology and equipmentmodernization helps to create competitive advantage The business results, even in the firstyear of operation, was profitable , higher profits year after year, the living condition ofstaff have gradually been improved

To achieve such results, largely due to the great efforts of a team of staff In addition,the branch has built a compact, reasonable structure, but still ensures full functional dutiesconsistent with the ability and level of bank management